Publish on: 12/4/19 12:02 AM
Written by Watt Utilities Team
UK energy giants Npower have decided to lay off 4,500 staff due to price cap regulation. The price cap is set to affect the profitability of the organization negatively, so it is imperative it reduces its workforce. As a result of the layoffs, three call centers are under threat of closure. Price cap regulation is a system whereby organizations are limited to the price they can set for its products and services. This regulation is mostly found in the UK and applies to industries in the utility sector. Price cap regulation can affect the revenue of an organization and drastically affect revenue generation.
The aim of price cap regulation is to discourage a monopolistic market where an organization controls the production or sales of goods and services. Regulatory bodies offer some form of incentive to encourage compliance while using penalty against an organization that defaults. The price cap is mostly applicable to industries in the utility sectors, mainly in the UK.
Npower is among the leading UK energy organizations. They serve about 3.75 million residential homes and businesses in the UK. The origination has nearly 2 decades of experience in the utility sector and is one of the most seasoned UK utility firms. They serve the following:
Homes – residential customers.
Business – small and medium enterprise customers.
Business Solutions – industrial and commercial customers.
Basics of price cap regulation
Regulatory authorities impose price cap regulations on industrial sectors such as electric utility, gas, water, and lots more. The utility industry supplies the populace with basic utilities, so there is a need to balance cost, quality, and availability for the distribution of these services. A price cap ensures that organizations do not go above a certain profit threshold and gain an unfair advantage over their competitors. The UK price cap is determined using several economic factors and variables. Some of the factors used in determining price cap are expected efficiency saving, inflation, and price cap index. The government has announced that the reason for the price cap is to protect end-users from been marginalized by utility providers, minimize inflation, and also ensure organizations are more efficient.
Npower Limited has announced that revenue cap has greatly affected its consumer business in a critical state; therefore, the organization is set to axe 4,500 jobs. This would ensure the company stays afloat while remaining competitive.
Price cap regulations set a cap on the price that Npower can charge its customers
The cap is set based on factors such as production inputs, efficiency, inflation and savings
Price cap regulations were meant to force Npower limited and other utility organizations to become more efficient in their offerings. However, it has resulted in less expenditures to upgrade and maintain their products and services.
The setting up of a price cap policy by the UK regulatory system has compelled Npower to find new ways of reducing costs in other to improve their margins. Npower today have found a way of running their operations with the least amount of disruption at a very low price in order to generate profit. They must cut down 4,500 jobs while finding other ways of getting the job done.
The organisation said in a statement through its executive Michael Lewis that there is a need to lower the working base in other to maintain sustainability. This would enable them to compete in the challenging UK market.
The price cap has affected a lot of utility organizations in the UK in the last 18 months. Some of them have lost all of their profitability or been forced to operate at a loss. In other to stay afloat, Npower would carry out this restructuring, which would cost about £500 million and need until 2022 to finish implementation. The announcement is a major setback for employees, and the UK utility market faces the risk of collapse if the Price cap is not re-evaluated.
The cut of 4500 workforce is the largest dismantling of any UK utility organization since the inception of privatization. The restructuring would ensure that one of the largest suppliers of energy in the UK would close down about 8 UK offices.